News / Japan: more shocks, less stocks

By Alex Lennanehttp://www.blogger.com/profile/[email protected]

12/04/2011

Despite the aftershocks continuing to hamper the rebuilding of Japan, the people are showing enormous resilience. While southern Japan mourns, and in solidarity with the north east, has put a hold on enjoyment – and consumerism – the people affected have appealed for their countrymen to continue to live “normal lives”. One man told the BBC they needed to see other people being normal, as they no longer could. Another called for the Japanese to start re-buying goods manufactured in the north, and to stop the economy from faltering.

But what news of the supply chain? Well, it will come as no surprise to discover that the export market is soft. Some airlines, including Lufthansa, have resumed freighter flights to Japan, where one of the challenges is a lack of trucks and truck fuel. But soft passenger demand has led many international airlines to suspend services for longer, leaving tight capacity in the import market, although the export market remains weak. But the wider implications for intra-Asian flows of components, and finished products to Europe and the US, is yet to be felt. HACTL reported that imports from Japan to Hong Kong fell 22.6% in March, while exports fell 18.3%.

In Japan’s key semi-conductor industry, which supplies about 40% of the world’s flash memory, the news isn’t all bad. While there are some 42 plants in Japan, the majority are in the south. Most of the factories remain open, but production and shipping has been slowed by power shortages and damage to logistics infrastructure, as well as requirements for radiation certificates.

(Even the briefest of factory closures has a significant affect on production. In December, a flash memory plant joint venture between Toshiba and Sandisk, which had a short power outage, saw production down 5 to 10% for both companies in the following two months. The plant closed for three hours following the Tsunami, which is expected to have similar ramifications.)

But, said Vinay Asdhir, director of global procurement for Dell, a slow market for notebooks earlier in the year has led to retail chains having bigger inventory holdings than previously expected. While shippers are gearing up currently for the “back-to-school” rush in August, existing stocks may make up for delays. “There is no industry-wide shortage as yet, but it might be different in the next four to eight weeks,” he warned.

One of the lesser-known products made in Japan is the plastic resin used to hold the wires in semi-conductors into place. Some 90% of the market stems from a single plant in Japan that has been closed down. But Jim Handy, semi-conductor analyst at Objective Analysis, said that when production stopped in 1992 at this plant, following an explosion, others in the industry were quick to respond and immediately ramped up production, suggesting that Chinese, South Korean and Taiwanese manufacturers, which are still said to have stocks of components, may be able to source the product domestically. The short-term impact is expected to be greatest on China, as Japan is its biggest source of imports, at 13%.

The hardest hit sector is automotives. IHS Automotive predicts that half Japan’s auto production will still be closed in early May, suspending one third of global production. IHS says that up to 5 million cars worldwide will not be built this year, out of the expected 72 million – and 13% of the world’s production has currently stopped. The next three to four weeks will see production backlogs worldwide. Toyota, Mazda and Honda have all suspended work at some plants: Honda gets parts from 10 suppliers in the radiation zone, while shortages of an electronic airflow sensor led to slowdowns in Europe for Peugeot Citroen and Opel.

And the ultimate affect on the air cargo industry? It’s likely to see yet more volatility. No shocks there, then.

To help the people of Japan, go to: The Japanese Red Cross Society